China's attraction cheap but irresistible

New Zealand firms have long been attracted by the cost-cutting lure of moving to China.

But while nobody seems to know how often or how many firms are making the decision to move offshore, everyone knows the reason why it happens.

"It's about cost, cost, cost, cost, cost," said Stuart Ferguson, chairman of the New Zealand-China Trade Association.

He said hefty compliance costs and relatively high labour costs in New Zealand were at the heart of most firms' decisions to relocate.

"If they wish to stay in business and employ anybody there is a perceived need on the part of some of those companies to move in part, or in whole, their manufacturing process offshore.

"They'd rather stick with what they've got here, but to survive and continue operating as a company and providing returns to shareholders they have to do something."

In June last year, Wellington firm Interlock said it was planning to shift part of its Miramar production overseas - to China, the United States and Brisbane - at the cost of about 80 local jobs.

Former executive director David Moloney said he was disappointed, but he was amazed Interlock had held out for so long.

"A lot of the stuff they made is in the commodity area and they were protected by patents for some time, but since they [the patents] had come off, people were able to buy the same product made in China for less than Interlock were paying for stainless steel."

In May, Sunbeam said it was closing its Palmerston North electric blanket factory, with the loss of 122 jobs, to go to China.

Sunbeam's general manager of New Zealand manufacturing, Craig Dais, said for the cost of employing one New Zealand worker the company could hire seven Chinese. 

"Labour costs are obviously an issue. If you compare it to the Asian market there's not really a possibility of competing in that area, especially in New Zealand and Australia," he said. ' "We wouldn't be going there if we weren't saving money."

He would not detail the exact cost benefits of closing the $20-million-a-year Palmerston North operation.

Combined job losses at Sunbeam and Interlock totalled 202 and represented, in conservative terms, a wage bill of about $5 million. 

Last year Mt Maunganui-based Invensys Appliance Controls said it was moving its manufacturing base to China before Christmas, at the cost of 65 local jobs.

Its Asia Pacific managing director, John Douyere, said the move was all about survival in an increasingly competitive market.

"If we did not move we would have to shut down in nine months' time," he said, noting that increasing the efficiency of the local operation was only a stop-gap measure.

The Chinese Embassy's economic and commercial counsellor, Zheng Zhihai, said businesses sought to relocate their operations to China to improve their profitability. The main barriers were language, culture and securing appropriate contacts.

The benefits were reduced labour and freight costs, a highly skilled labour force and a large domestic market.

He said it was likely more New Zealand businesses would relocate to China as the two countries worked through the details of their proposed free-trade agreement.

Zhihai often deals with New Zealand firms seeking information on how to relocate to China.

"We seldom [are] involved in specific deals and we try to help them to identify the environment which is best for their investment," he said.

Meanwhile, Ferguson said New Zealand manufacturers were being made offers to move their operation offshore on a daily basis.

"They are being searched out. Not just by Chinese, but by Indian and Sri Lankan, Cambodian and Vietnamese. People hungry for business. They see the whole world as a happy hunting ground and New Zealand just happens to be one of those points."

- NZPA